Inheritance tax in Spain
Inheritance tax for expats
Many expats are caught off guard by the fact that when you inherit a property, you must pay inheritance tax in Spain, which can vary dramatically depending on where you live and your relationship with the deceased. At SpainTax, we'll break down everything you need to know about inheritance tax in Spain, who has to pay it and how you can reduce your tax burden.
What is inheritance tax in Spain?
Inheritance tax, known in Spanish as Impuesto de Sucesiones y Donaciones (ISD), is a tax that must be paid when you inherit assets in Spain. Unlike in some countries where the estate itself covers the tax before distributing assets, in Spain, it is the beneficiary (heir) who is responsible for paying the tax.
This tax applies to a wide range of inherited assets, including:
- Real estate (houses, apartments, land, commercial properties)
- Bank accounts and cash deposits
- Investments (stocks, bonds, mutual funds)
- Personal belongings (vehicles, jewelry, artwork, valuable collectibles)
- Business ownership (shares in companies or family businesses)
How is Spanish inheritance tax calculated?
The inheritance tax calculation you owe is determined by several factors:
The value of the assets inherited
The higher the value of the inheritance, the higher the tax rate you will have to pay. Spain applies a progressive tax system, meaning that large inheritances are taxed at a higher rate than smaller ones. The tax rates range from 7.65% to 34%, but they can be modified by regional governments.
Your relationship to the deceased
Spain categorizes heirs into different groups, and closer family members benefit from lower tax rates and higher allowances. The four main inheritance groups are:
Group 1: Children under 21 years old (lowest tax rate, highest deductions)
Group 2: Children over 21, spouses, parents, and grandparents (moderate tax rates)
Group 3: Siblings, nephews, nieces, aunts, uncles, in-laws (higher tax rates)
Group 4: Distant relatives and non-family members (highest tax rates, fewest exemptions)
For example, a child inheriting from a parent in Madrid might pay little to no tax, while a friend inheriting from a friend could face a much higher tax burden.
The region of Spain where the assets are located
Spain’s 17 autonomous regions have the authority to modify inheritance tax rules. This means that depending on where the inherited assets are located, the tax burden can be significantly different.
- Madrid, Andalucía, and Murcia offer major tax reductions (up to 99%) for close family members.
- Catalonia and Valencia have stricter tax policies and higher tax rates.
- The Basque Country and Navarre have completely different tax systems.
If you’re an expat inheriting assets in Spain, the regional tax laws can greatly impact how much you owe.
Deductions and allowances
Spain provides tax-free allowances depending on the heir’s relationship to the deceased and personal circumstances:
- Spouses and children: Can receive an exemption of up to €16,000 (varies by region).
- Disabled heirs: May receive additional exemptions of up to €47,858, depending on the level of disability.
- Primary residence deduction: If the heir inherits the deceased’s main home and keeps it for at least 10 years, they may receive a 95% reduction in taxable value (subject to regional limits).
Who has to pay inheritance tax in Spain?
Expats must pay inheritance tax in Spain under the following circumstances:
- You inherit assets located in Spain: Even if you live abroad, Spanish inheritance tax applies to properties, bank accounts, and other assets physically located in Spain.
- You are a tax resident in Spain: If you live in Spain and inherit assets from someone (even from outside Spain), you may be taxed on your worldwide inheritance.
- You inherit from a Spanish resident: If the deceased was a tax resident in Spain, inheritance tax may still apply, even if the heir lives abroad.
However, some international tax treaties (such as between Spain and the UK or the USA) may affect how and where the inheritance is taxed. Expats should always check whether their home country has a double taxation agreement with Spain to avoid paying tax twice.
By understanding how inheritance tax is calculated and how different factors impact the final amount, expats can better prepare and take advantage of possible reductions.
Can expats reduce their inheritance tax in Spain?
Yes! Here are some ways to legally reduce your tax burden:
Check regional tax benefits
If the deceased and the heir both lived in a tax-friendly region (like Madrid), large reductions may apply.
Consider lifetime gifting
In some cases, gifting assets before death can reduce the inheritance tax burden. However, Spain also has a gift tax, so professional advice is essential.
Set up a spanish will
A Spanish will can simplify inheritance procedures and may help structure assets more tax-efficiently.
Explore international tax treaties
Check if your home country has a tax treaty with Spain that could reduce or eliminate double taxation.
What happens if you don’t pay inheritance tax in Spain?
The Spanish tax authorities (Hacienda) require heirs to declare and pay inheritance tax within six months of the date of death. If you don’t pay:
Interest and penalties may apply.
The Spanish government can place a tax lien on inherited property, making it impossible to sell or transfer ownership. Banks can freeze inherited bank accounts until tax is settled. It’s crucial to start the process early and seek a professional tax advisor if needed.
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Experts in tax inheritance in Spain
Inheritance tax in Spain can be complex and expensive, especially for expats unfamiliar with the system. By understanding how it works and planning ahead, you can avoid unnecessary costs and legal complications.
If you’ve recently inherited assets in Spain or expect to in the future, consider speaking with a tax professional to ensure you pay the minimum required tax while complying with Spanish law.
Would you like to explore tax-saving options for your inheritance? Our experts at SpainTax can help you navigate Spanish tax laws with ease. Get in touch today!
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